Intelligence in Insurance Law
Your home or premises has been destroyed by fire but your insurer won’t accept or settle your claim. You need your insurer to quickly accept and settle your claim in order to rebuild your premises or home, and to minimise other continuing losses such as loss of profits and continuing rental of alternative accommodation.
Fire Claim Issues
Fire claims, whether against an insurer, or by an uninsured owner against a third party which caused the fire, often given rise to protracted disputes.
Fire losses are often severe. Large amounts of money are needed to reinstate property and make good the loss.
Often the fire will destroy much of the evidence as to what caused it. It can even be difficult to locate where the fire started. Evidence critical to determine whether an insured was in breach of the policy may be obliterated.
What was in the home or premises may be totally destroyed including the bookkeeping records of a business. The business owner may have incomplete backups of his or her detailed business and financial records. A homeowner’s initial and emotional reaction after a house fire is often to remove and bin all of the destroyed contents without making records or taking photographs of them.
Often there is a dispute as to whether the premises or home must be rebuilt or can be repaired.
These issues make it almost inevitable that there will be disputes in a fire claim against an insurer or a claim by an uninsured owner against a third party whose negligence caused the fire.
Due to these issues insurers often delay, frequently for lengthy periods, a decision on whether to accept an insurance claim. This is particularly so when the insurer is unable to determine how the fire started. On occasion insurers have taken as long as 12 months to decide whether to pay a fire claim. Infrequently an insurer is still undecided whether to meet a fire claim three years after the loss !
If the claim is accepted, the insurer may still delay a determination of the amount to be paid or alternatively may offer a low amount.
An insurer is under a duty to investigate and make a decision whether or not to meet a claim within a reasonable time. Courts have held that a reasonable time for an insurer to investigate and make a decision in relation to a fire claim, even in difficult and complicated cases, is generally 12 – 14 weeks. This time takes into account delays which may result from forensic testing.
It does not matter that there may be ongoing investigations by a government work-safety department or police, or whether police are still determining whether to lay any charges in connection with the fire.
See the article “Delays by Insurers” for the steps that can be taken in relation to insurance delays and the compensation which can be claimed for delay.
Denial of Liability
It is not unusual for an insurer to deny liability for a fire claim.
Insurer Denies Liability on the Basis of Non-disclosure and Misrepresentation
Often the insurer denies it is liable because it says an insured person did not make full disclosure or misrepresented facts to the insurer before it issued the policy. The insurer will claim that it would not have issued the policy had it been fully and correctly appraised of the facts.
In practice it is difficult for an insurer to escape liability for a claim if the insured innocently rather than fraudulently misrepresented or failed to disclose facts to the insurer.
To escape liability the insurer has the burden of proof to show that either it would not have issued the policy or would have inserted a term in the policy which excluded its liability for the claim had it known the true facts.
The difficulty facing the insurer is that it has to prove what it would have done given a factual situation which is hypothetical and never occurred. Courts are mindful, particularly when large sums of money are involved, that it is easy for an insurer to take a view beneficial to itself of what it likely would have done.
For details of what to do if an insurer denies liability on the basis of non-disclosure or misrepresentation, see this article.
Denial of Liability – Failure to Take Due Care or Failure to Take All Reasonable Precautions
Sometimes an insurer will attempt to deny liability on the basis that an insured failed to comply with a condition in the policy that the insured take “all reasonable precautions”, or exercise “due care”, or “due diligence” to avoid a loss.
When interpreting these types of clauses Courts take into account the commercial purpose of insurance policies, which amongst other things is to provide cover against losses caused by the insured’s negligence.
Courts have held that an insured does not lose cover if he fails to take measures to avoid dangers to the insured property which the insured himself does not foresee. Further the insured’s failure to take any particular precaution to avoid the loss of property must be more than negligent, that is, at least reckless knowing that a danger exists, and not caring whether or not the danger is avoided.
Denial of Liability – Breach by Committing Unlawful Acts
Similarly, particularly in commercial or industrial fire claims, an insurer may attempt to deny liability by claiming that the insured has breached a clause requiring him or her to comply with all laws, regulations or statutory obligations.
Again, Courts take into account the commercial purpose for which the insurance policy is issued. For example if a clause denying liability for unlawful acts was interpreted literally, a motor vehicle insurer would be entitled to deny liability every time an insured caused damage after committing the offence of driving without due care !
Courts have held that clauses relating to an insured’s unlawful acts or illegal activity do not give an insurer an excuse to deny liability where the insured’s acts were negligent or inadvertent.
In order for an insurer to successfully deny liability, Courts have held that the offence has to be a more serious criminal offence or a more serious breach of the law, rather than a breach of a relatively minor regulatory offence. In determining which category an offence falls into, a Court will look at the type and extent of the penalty laid down for the offence and the particular consequences of the conduct in question.
Insurer Denies Liability for a Breach of Policy Condition Generally
An insurer cannot deny liability for any breach of a policy condition.
If an insured breaches a policy condition, an insurer can only reduce the amount payable to the insured for the claim by the amount which the insurer was “prejudiced” by the breach.
What this means is that an insurer cannot refuse to pay a claim where no part of the claimed loss was caused by the breach of the policy condition. On the other hand, if the breach of the policy condition did cause, or could reasonably be regarded as being capable of causing the claimed loss, the insurer can then refuse to pay the claim.
Disputes as to Loss
Under an indemnity policy the insurer must pay an insured the amount of the loss which he or she has suffered, which is not necessarily determined by the “market value” of the lost property.
Frequently Homeowners and other insurance policies provide that the loss is to be assessed by the “replacement value” of the item, or “new for old” if it cannot be repaired.
Even if the policy does not require payment on a replacement or repair basis, or if a third party is being sued for having caused the fire, courts will often assess loss by reference to the item’s replacement value, possibly with a variation for depreciation, “wear and tear” or “betterment”. This is because courts take the view that an insured’s possessions which are acquired for use, enjoyment and convenience are not to be seen as mere marketable or trading commodities.
Courts may take differing approaches to the assessment of loss depending on the nature and history of the item lost. Courts are more likely to assess loss on the basis of “market value” if the lost property is an investment or it is unreasonable or unlikely that the insured property will be reinstated or replaced.
Premises or Home
Disputes often arise between insurers and insureds after a fire as to whether premises or a home can be repaired or must be rebuilt. Insurers often claim that a damaged premises or home can be repaired at much less cost than the demolition and rebuilding of the damaged premises.
Concerns may arise however that the heat of the fire has structurally weakened the walls and other parts of the premises. The owner may have serious concerns that if the masonry in fire damaged premises are cleaned, coated with an impervious material, and repainted, lingering and noxious odours and discolouration may reappear. In this type of dispute the advice of experts will be crucial.
Frequently, insurers will engage loss adjusters or quantity surveyors to provide an estimate of the cost of repairs to the premises or home. In my view in many ways a more realistic measure of the loss is a quotation from a reputable builder, bearing in mind that a builder is under an obligation (at least in relation to residential premises) to stand by and make good their work, particularly if any fire damage, staining or odours reappear after the repairs are completed.
Equipment, Fixtures and Fittings
Where the policy does not provide for reimbursement on a replacement basis, courts have held that each item of machinery, furniture or property (other than stock in trade) forming part of the business may have its own special function to perform in promoting the owners advantage or comfort. Again, generally courts say that these items are to be regarded as something more than mere pieces of merchandise and the loss may be assessed by taking the replacement value and making a deduction for depreciation.
The claim for contents often leads to much angst. Generally, for the reasons set out above, homeowners do not photograph or catalogue all their contents in the aftermath of a fire. Often, it falls to compiling a list of the contents from memory some time after the fire has occurred.
As the contents frequently have been thrown out or destroyed without any record, an insurer or third-party may take a confrontational view in relation to the existence of various of the contents and their value.
It will be important whether the policy provides for the loss of contents to be assessed on a reinstatement or replacement value.
Alternatively where the claim is being made against a third party, or under a policy which only provides for lost contents to be assessed on an indemnity value items are likely to be assessed by taking the replacement value, possibly with some deduction for prior use or betterment.
Please feel free to contact or telephone me should you wish to discuss any of the matters above.